Shoprite struggles to regain lost love

03 February 2019 - 06:42 By NTANDO THUKWANA

Reclaiming the "retail darling" title will prove a gruelling task for Shoprite, given the evidence this week of just how deeply entrenched the group's troubles are: the retailer warned that its half-year earnings may fall as much as 26%.
The one-time retail sector's favourite got slammed, its share price tumbling as much 17% when it released its trading update on Tuesday, its lowest level in two decades.
By the end of the week, Africa's biggest grocer was trading 0.5% weaker.
The grocer - steered by retail maverick Whitey Basson for almost 40 years - cited profit concerns in its Angolan operations, which faced an 85% devaluation in the region's currency against the dollar, causing affordability challenges for its consumers.
Shoprite chair Christo Wiese, who has a shareholding of about 14% in the company, told Business Times this week that he was confident the group would return to its former glory days when it had the majority market share among the retailers. Clawing back market share lost to direct rivals was not a concern.
Wiese said the trading statement was "disappointing" but that he hoped it would be read in its full context.
"I don't think there's anybody in SA who could easily deal with the stress that the South African consumer is currently under, but it should be remembered that the team in place at Shoprite now was Basson's handpicked team."
Basson retired two years ago, having taken over the company at the end of the '70s - when it was valued at R1m.
Wiese has been a colleague and business partner with Basson since their days at Stellenbosch University.
Shoprite's rise to dominance in the South African retail space has, for the most part, been at the expense of the Raymond Ackerman-founded Pick n Pay.
But it seems the fellow Cape Town grocer, now run by British CEO Richard Brasher, may have benefited from the larger retailer's follies.
In a move to catch up with its market peers, Pick n Pay established a new distribution network in recent years, an investment that has seemingly paid off.
The grocer benefited from Shoprite's stock-shortage woes and gained market share.
The fall of Shoprite's share price on Tuesday after it released its trading statement
Compared to the 34% decline in Shoprite's shares over the past year, Pick n Pay's shares have gained 3.7%, fueling the market's belief that the retailer is on the mend.
"In the past, Shoprite has been the beneficiary of a similar calamity in changing systems and distribution centres that befell some of our competitors.
"These things happen. There's no doubt we will win some customers back. We've got plans for that and we'll just simply wait and see how that plays out," Wiese said.
Casparus Treurnicht, a portfolio manager at Gryphon, said among the group's mishaps was its overinvestment in a new IT system and distribution centre.
"They overinvested in too short a time span . at a time when the consumer was facing increasing pressure. I think they tried to do too much in a short amount of time at the wrong time," he said.
Under CEO Pieter Engelbrecht, who came in two years ago, the retailer has published what Treurnicht described as Shoprite's "worst" results.
But its troubles should not all be blamed on a change in management. Engelbrecht has also had to compete in an environment with weak economic fundamentals, which put a strain on the company.
"I don't think it's a case of the wrong CEO, I think it may be more a fact of a Whitey Basson [being able to see] there were difficult times ahead, and maybe they should've been a little more conservative about upgrading and rolling out more capex," Treurnicht said.
"I won't put it squarely on Engelbrecht's head . Whitey is probably the most experienced CEO South African retail has ever seen. I don't think we'll see someone like him ever again."
Shoprite will report six-month results on February 26.
Wiese said Basson was a retail genius for many reasons, including his "brilliant track record" and how he had managed to build the Shoprite brand.
"He deserves all the credit for that," he said.
"There's the old belief that nobody is indispensable, people come and go. Whitey is still a strong supporter of everything we're doing."

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